Solar

Photo credit: SolarCity

Against all odds, the solar industry is beginning to see real traction. Granted, there is still a long way to go. However, statistics indicate that those who argue solar energy will become mainstream someday can no longer be called 'clueless.' The rapid growth that the industry is seeing means that investors should consider investing here now more than ever.

An inside look
Earlier this year, NPD analysts reported that the new solar photovoltaic (PV) installations in the United States throughout 2013 reached a record 4.2 GW. That represents a 15% increase compared with the new installations in 2012.

According to another report from GTM Research, new solar systems are being installed in the U.S. every four minutes, up from the 80-minute interval in 2006. And GTM Research projects that, by 2016, this interval would have reduced to just 80 seconds.

Source: GTM Research

However, a new report from the Intergovernmental Panel on Climate Change, or IPCC, suggests that GTM Research's prediction is achievable. The research team said that if the global mean temperature is to be limited to the safe two degrees Celsius above pre-industrial temperatures, global greenhouse gas emissions must be lowered by 40% to 70% compared with 2010 by mid-century, and to near-zero by the end of the century.

If policymakers take this issue seriously – and they're expected to – the renewable energy sector is well positioned to see considerable growth over the next several years, as growing this sector is one of the recommendations by the research team.

Companies that are currently well positioned
SolarCity (NASDAQ:SCTY) is currently the leading U.S. residential solar installer, owning 26% of the market. That implies that, of every four new solar panel installations, SolarCity is involved in approximately one of them.

More interestingly, the company said in its last annual report that a new customer makes a switch to a SolarCity system every three minutes of each working day. That figure means SolarCity adds about 160 new customers to its base every working day. 

And with the company's strategy for working with utilities, the adoption of solar energy would be accelerated. Peter Rive, the company's co-founder, recently wrote about this strategy. The conclusion of the whole story is that SolarCity is making its Tesla-provided battery energy storage solution available to utilities and grid operators.

The fact that the solution provides peak shaving, frequency regulation, and voltage support benefits means that it would be attractive to utilities. If this strategy turns out successful, SolarCity would gain entry into most American homes faster than projected, which means its business would grow at a faster pace. It also means that SolarCity would be in charge of the solar market for quite a while.

SunPower (NASDAQ:SPWR) and JA Solar (NASDAQ:JASO) are two other companies that are well positioned to benefit from the growth. The operating efficiency of these companies is what makes them especially very attractive. Granted, JA Solar is yet to break even. However, its ever-improving capital efficiency and market reach position the company for success over the long term.

In an industry with high cost being one of the major problems, one should find it impressive that both of these companies are finding it easy cutting down costs. It means that they can lead the way in helping the industry to overcome the high cost problem. Note that just about every other major solar company – apart from SunEdison and FirstSolar have been seeing their costs rise. The reason for choosing these companies over SunEdison is mainly because SunEdison's costs consist of costs for its semiconductor segment and its solar segment combined. This makes it quite difficult to tell if it's cost efficient at solar production.

In 2013, JA Solar was able to cut its cost of sales by 5.2%, while SunPower was able to cut its cost of sales by 7.1%. In addition, JA Solar reduced its operating expenses by 38%, while SunPower reduced its own by 37.8%.

A look at the cost efficiency of solar companies

Figures from the companies' annual report

Foolish bottom line
Obviously, circumstances had influence on the figures above. In fact, you should note that SunPower is vertically integrated in that, in addition to manufacturing, it has contractors that help install its systems. It also deal in solar panel leasing for homes. However, in general, we can see that SunPower, and JA Solar are more efficient at bringing down costs.

As stated previously, it's these companies we can look to for solution to the problem of high costs in the solar industry. Coupled with the impending growth that I discussed earlier, these companies are definitely the ones investors should watch.

Craig Ady has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.